For Better or Worse, China Passes Internet Identity Law

Chinese Internet stocks dropped across the board on December 24 as news circulated that the top legislature in the country would begin deliberation on a law that would require all web users to register their real identity with the government in order to obtain access to the Internet. On Friday, the news broke that the law had been passed and, contrary to fears raised earlier in the week, Chinese Internet stocks trekked upwards, even as the major indices fell.

Weren’t investors worried that this legislation would reduce web traffic?

Investors and business leaders alike disapproved of the legislation. The selling pressure witnessed when the law was opened up for deliberation was evidence of investor sentiment, while SINA Corporation (NASDAQ:SINA), which operates a massively popular micro-blogging platform similar to Twitter, expressed concern in a 20F filing last spring, when the company was grappling with enforcing a similar rule for users of its Weibo service. The company commented:

“If the Chinese government enforces compliance in the near term, such action may severely reduce Weibo user traffic. The implementation of user identity verification has deterred new users from completing their registration on Weibo and a significant portion of those who have provided identity information to us was rejected by the Chinese government database, which means that these users will have limited posting ability in the future and may cause the level of activity of Weibo users to decrease over time.”

One possible reason why the stocks have come back up — SINA Corp. was up 2.2 percent in late-afternoon trading on Friday — is that the law could shift the cost of compliance away from businesses and onto the government. In its previous iteration, SINA was responsible for much of the heavy lifting, but the new scheme seems to put the role of Big Brother firmly on the government’s shoulder, right where it’s wanted…